The blog of the 'There is a Better Way' campaign by STUC staff about policy issues that are, or should be, in the news and guest contributors on issues of social justice. Written from a STUC perspective, contributions will often cover areas where there is yet no settled STUC policy and go into areas in more detail than our formal decisions. We welcome debate and we don’t expect everyone to agree with us, but we will remove any comments that are offensive, irrelevant or otherwise annoy.

Tuesday, 3 March 2015

New Scottish Government Economic Strategy: Corp Tax and Inequality

There’s much
to discuss in the 82 pages of the Scottish Government’s new/updated/refreshed
economic strategy published today. I’ll try to return to other stuff over the
next few days but confine this blog to two specific issues.

The first is
the dropping of the Scottish Government/SNP’s longstanding commitment to a
deep, blanket cut in corporation tax (see page 80) in favour of a more nuanced
approach targeted at encouraging specific investments (e.g. R&D) and
sectors (e.g. manufacturing).

Why focus on a reserved, and therefore for the immediate purposes of
this strategy, an irrelevant power? Well, by arguing for years that pulling
this single ‘lever’ (yuck!) would have a transformational economic impact,
Scottish ministers did the ongoing and essential debate around Scotland’s
economic development a huge disservice. This difficult, complex process was
reduced to a simple, superficially plausible story of how one tax cut could and
would dramatically boost growth and jobs. Risible comparisons with Ireland’s
Celtic Tiger crowded out nuanced consideration of how policies successful in
other nations might be effectively transplanted into the specific economic,
cultural and institutional context of 21st century Scotland.

Now we can hopefully get back to a national debate that embraces the
fundamental complexities, difficult decisions and trade-offs intrinsic to economic
development policy. For economic development is a tortuous slog – in a modern,
advanced economy like Scotland there are no quick big fixes, no single policies
that will reliably, significantly and sustainably boost the long-term growth
rate. If such policies existed, they would already have been implemented with
great gusto across the developed world.

Politicians are understandably nervous about ‘u-turns’ so the First
Minister and her team should be congratulated for having the courage to revisit
a once defining policy. It would be pretty churlish to do anything but sincerely
and enthusiastically welcome the reversal. It couldn’t have been an easy
decision. Let’s just look forward to a better quality debate; one in which
fairy stories are eschewed not relentlessly promoted.

The second issue is the scope of
measures proposed to reduce inequality. These centre on labour market
participation, fair work, childcare, educational attainment and regional
development – all laudable and important but in totality insufficient to significantly
reduce inequality.

What are the distinguishing
features of the UK model? Why did inequalities of income and wealth shoot up in
the 1980s and remain relatively high? The explanation is surely to be found in
(these are additional to the trends in skill biased technological change and
trade which have acted to increase inequality in most of the developed world):

A
relatively low level of collective bargaining coverage – contributing to
trends in both low and high pay;

Very
lightly regulated labour and product markets;

A
large and powerful financial sector, a more financialised economy – contributing to inequality through the
enrichment of its participants, shifting resources away from the
productive economy and by forcing firms to focus on immediate shareholder
value;

A
uniquely febrile market for corporate control and poor corporate
governance exacerbate the trends embedded in financialisation – the UK
model is quite uniquely short-termist;

A
uniquely relaxed attitude to ownership (just think - Germany has had only
three hostile takeovers since the second world war and all three only
proceeded after significant intervention);

Tax
changes, particularly steep cuts in the higher rate of income tax which
have changed incentives at the top i.e. encouraged executives to bargain
in their own interests rather than those of the firm; and,

Privatisation
and outsourcing – pursued with more vigour and to a greater extent in the
UK, witness the extent of state ownership of transport and utilities in
most other advanced economies.

Now clearly the economic
strategy, as far as possible within current powers, tries to steer a different
course on industrial relations to which the STUC will endeavour to contribute positively. But the words collective bargaining are absent
and the mooted partnership approach – although reasonable and a welcome relief
from the Coalition’s aggressive approach to both trade unions and employment
legislation - will not reverse the fundamental asymmetries in economic power
underlying the growth in inequality. And, unfortunately, the strategy is silent
on the other issues raised above.

I was fortunate enough to be
present when the First Minister’s gave two excellent speeches to (mainly)
business audiences at SSE Glasgow in November and the National Economic Forum
in December. Her argument on both occasions can be crudely, but fairly I think,
reduced to the following syllogism:

Tackling
inequality is good for growth

Growth
is good for business

Ergo,
tackling inequality is good for business.

The propositions may be true but
the conclusion is seriously flawed for inequality in Scotland (or the UK as a
whole) will not be tackled without challenging the
prevailing business culture. Some may object that the Scottish Government
doesn’t have the powers to, for instance, implement structural reform of the
financial sector, reform corporate governance or reverse anti-trade union legislation. They
would of course be perfectly correct. But not currently possessing a power has
never prevented Scottish ministers stating what they would do with it once
devolved. The point is that factors fundamental to reducing inequality have
been ignored, even in the White Paper. The new economic strategy is similarly myopic.

The Scottish Government claims
that ‘increasing competitiveness’ and ‘tackling inequality’ – the ‘twin
pillars’ on which the strategy is built – are ‘mutually supportive’. But what
does this actually mean? Haven’t the supply side reforms implemented over the
past four decades in the name of boosting competitiveness directly exacerbated
inequality? Boosting competitiveness has usually been code for deregulation of
labour and product markets, tax cuts for business and wealthy individuals and
anti-union legislation.

This isn’t the Scottish
Government’s agenda and it would be ridiculous to paint the new strategy in
this way. But it will be impossible to tackle inequality effectively without
implementing measures which have for a long time now been regarded as bad for competitiveness.
So big challenges for the Scottish Government, and those organisations like ours
that want to see the strategy work and for employer representative organisations who have tended to pursue a very narrow agenda on competitiveness. I'll try to explore some of these issues in future
blogs.

Finally, while the Scottish
Government has failed to produce a compelling inequality reduction strategy it’s
probably worth pointing out that the opposition has hardly covered itself in
glory on this issue. If Jim Murphy wants to ‘end inequality’ (an outcome irreconcilable
with any functioning economic system ever devised) he might start thinking
about how Labour will start to address the issues neglected in today's strategy.

About Me

The STUC is Scotland's Trade Union centre.
Our purpose is to co-ordinate, develop and articulate the views and policies of the trade union movement in Scotland and, through the creation of real social partnership, to promote: trade unionism; equality and social justice; the creation and maintenance of high quality jobs; and the public sector delivery of services.
The STUC represents over 596,000 trade unionists, the members of 37 affiliated trade unions and 22 Trades Union Councils. We speak for trade union members in and out of work, in the community and in the workplace, in all occupational sectors and across Scotland. Our representative structures ensure that we can speak with authority for the interests of women workers, black workers, young workers and other groups of trade unionists that otherwise suffer discrimination in the workplace and in society.